What is a hammer clause in a legal malpractice insurance policy?
It’s a great question that I get asked a lot. Simply put, a hammer clause in a legal malpractice policy is the carrier’s ability to force you to settle a claim that you really don’t want to settle.
How does the carrier do this?
The carrier basically just says, look, we can settle this claim for X number of dollars. You say, well, no, I don’t want to settle it for X number of dollars. And the carrier says, okay, we won’t settle it, we’ll keep fighting it, but if the end result is a settlement larger than what we could have settled it for back here, you’re responsible for the difference. You’re on the hook.
What is step rating and how does it affect my legal malpractice premium?
Simply put, step rating actually causes your premium to increase. Why? Because each step is equivalent to an additional step or an additional year of exposure.
When you’re a new lawyer, or you’re just opening up your firm, you’re down on the lowest level, or the lowest step because you don’t have anything or any ghosts or skeletons in your closet that the carrier is concerned about.
But each year as you practice, you go up each step. And again, the more steps, the more exposure. The more exposure, the more premium the carrier is going to charge.
So simply put, step rating causes your premium to increase.
How do I report claims under my professional liability insurance policy?
This is a great question. You spend a lot of money on a professional liability policy and you want to be sure that when and if you do have a claim to report, that it’s done properly and promptly.
Usually the carrier has three ways for you to report claims. One is by email, two is by fax, and three is by us mail. The contact information for these three methods of reporting claims is usually found in the policy itself or on the declarations page.
Remember, don’t hesitate. Don’t wait. prompt reporting of claims is great. I’m Don I your insurance guy.
What deductible should I choose for my legal malpractice insurance policy?
That answer is really a personal preference. You can go on both ends of the spectrum from a zero deductible, $10,000 deductible or even higher. It really depends on your comfort level.
If you are comfortable having zero deductible and paying a higher premium, because that’s what’s going to happen, then take that.
If you’re not comfortable with paying the higher premium and having a low deductible, take the lower premium and higher deductible. Again, I call it sleep insurance. Whatever you’re comfortable with is what you want to choose.
Many lawyers have some type of ownership/equity interest in or with the clients they serve. Others serve on local nonprofit boards within their community. All do so usually without completely understanding how these outside interests and relationships affect their professional liability insurance coverage.
Most lawyers professional liability policies exclude coverage for those professional services that lawyers provide to clients where the lawyer has an ownership interest in or with that client. Some policies go so far as to include ownership interests of the lawyer’s spouse! Common examples that I have seen on lawyer applications are: ownership in title agencies, real estate, and small businesses of all kinds.
LPL Polices also exclude the acts of the lawyer when acting as a director, officer or board member of entities, including nonprofits. Lawyers are often asked to sit on boards because they ARE Lawyers and are tapped for their knowledge of the law during board meetings. It is very difficult for the lawyer and the board to distinguish when the lawyer is acting as a board member and when and if the lawyer is acting in the capacity of a lawyer and lawyer client relationship. It is easy for the lawyer to get caught in a situation where the board believes he/she provided legal advice however the lawyer believes that he/she provided that advice as a member of the board. In the event that “advice” leads to a bad outcome for the board and eventually ends in a malpractice claim, the lawyer could be without coverage!
Before accepting board positions or investing with or in clients, all lawyers should ask how this relationship will impact the professional liability insurance from both a coverage and cost standpoint.
When insureds report a claim to their carrier, the expectation is the claim will be covered and their assets and reputation be protected. While this happens the majority of the time, there are situations when the worst occurs and the claim is denied coverage. There are several reasons insurance carriers decline coverage on reported professional liability claims. One of the reasons claims are denied is due to the late reporting of the claim. Although late reporting is a cause for claim denial, it can be avoided by the insured.
Professional liability insurance policies require that all claims be reported in the policy period that the insured first becomes aware of the claim. This is also true for potential claims. Most carriers have wording in the policy that states the insured needs to report those incidents that the insured could reasonably foresee the incident may lead to claim. Failure to report these potential claims may lead to a denial in coverage.
It sounds easy and it should be easy for the firm to report claims and potential claims as soon as they are aware of them. Unfortunately, it is never easy. No firm wants to “think” they made a mistake or a client is unhappy with their services. In addition, some insureds think that the mere reporting of a claim or potential claim will increase their insurance premium, so the claim goes unreported. Not true. The mere reporting of a single claim or potential claim does not necessarily increase your premium.
Bottom line…you pay a lot of money to secure the policy, don’t jeopardize the coverage when you need it most. Report issues early. Perhaps the tips below will help you make sure your claim or potential claim is reported in a timely fashion:
Meet monthly with your staff/lawyers to review the “tough” cases.
Encourage your staff/lawyers to bring problem cases to your attention. Don’t punish.
At renewal time, ask all lawyers in the firm to answer the potential claim and claim question on the renewal application. Have them sign and date it.
Most carriers now have a claim hot line or help line that is available to insureds. Use it.
Make sure that your staff/lawyers know how the insurance policy works and that claims and potential claims need to be reported immediately or they risk losing coverage. Identify a point “claims person.” Have all claims and potential claims directed to that person for review and reporting.
Don’t give informal legal advice to friends or family.
Don’t give informal legal advice to friends or family. It can be tempting at a party or family event, but it could be harmful to both yourself and the receiver of the advice. Your advice, given casually, may be less well thought-out than usual, or not backed by needed research. Also, you could be creating a conflicts issue for yourself by giving advice to a person who has not been through a conflicts of interest check first.
Unfair or not, lawyers have to be more careful than the average person when posting online. Don’t be casual. Don’t post anything about a specific legal matter or client. Include disclaimers. Remember that the Model Rules of Professional Conduct apply to your actions online.
Avoid fee disputes by explaining the fee arrangement in great detail during the first meeting. Confirm this understanding in writing and have the client agree by signing the agreement. When billing the client, ensure there is enough detail in the bill to allow the client to understand everything you are doing on their behalf. Use simple terminology and avoid abbreviations to make sure the bill is easily understood.